Owning an investment property is a fantastic way to secure your future and achieve financial freedom; however, many investors are overpaying tax on their investment by not claiming a tax deduction for their property depreciation.
Tax depreciation is the depreciation claimed by an investment property owner to compensate for the loss of value of physical assets used in an income-generating endeavour. These depreciation expenses are allocated over multiple periods, meaning that the overall tax on depreciable tangible assets will decrease over the course of their lifetime.
What are some examples of assets that may depreciate over time?
Plant and Equipment Depreciation
Plant and equipment depreciation refers to depreciation of assets within your investment property that have a finite lifetime and that will lose value over time. This value loss is typically attributed to ageing and general wear and tear as they are used over the years. Assets within your property that fall under this category include fittings such as lighting, carpeting and flooring, appliances such as a stove or fridge, security systems such as cameras and alarms, air conditioning and heating units, and even garbage bins that are provided as part of the property.
Capital Works Depreciation
Capital works depreciation refers to aspects of the property or building such as constructions, extensions, renovations, and any structural alterations or improvements. Projects included within this include garage or patio extensions, renovations or makeovers, and additions such a gazebo, carport, fence, or sealed driveway.
A tax professional can help with personalised advice and recommendations for your investment property; however, there are some criteria to consider when determining if your assets are eligible for tax depreciation.
1. The asset has an ascertainable lifespan, and it’s useful life surpasses one year.
For an asset to be eligible for a depreciation claim, it must have a useful life that exceeds one year, and that can be relatively estimated. An asset must be a long-term asset, implying that it has a useful life of more than 12 months, and you must be able to provide a reasonable estimate for the number of years the asset’s useful life will last.
2. The property owner owns the asset.
Any assets that are eligible for tax depreciation must be owned by the taxpayer. For example, if a tenant owns the stove in the property, this cannot be claimed on a tax deduction.
3. The asset is used in income-generating activities.
Assets that are used in an income-generating context are eligible for depreciation, and can be deducted from the tax amount. This does not extend to personal items or assets acquired for personal use. For example, you cannot claim tax depreciation on flooring in your personal home.
Tax depreciation is a great way to capitalise on your investment and reduce the overall tax paid on your property for the time that you own it. Tax depreciation specialists, like Deppro, can help take the guesswork out of your tax time, so for more information please feel free to reach out to our friendly team today.
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Most taxpayers in Sydneysuffer from panic attacks and spend sleepless nights when the tax filing season comes each year. This is understandable because tax return filing can be complex,especially to those with diverse incomes or have participated in investing in property. The tax codes and guidelines to comply and the error penalties make it worse. Here are steps to take to make your tax return process go smoothly.Let’s jump in.
File on time
Filing your taxes on time should give you time to prepare your receipts or applicable statements, ensuring you don’t miss out on valuable credits and benefits.Just plan ahead and start to get ready. If you end up owing the government anything,you will not incur any interest or penalties on that amount when you file early. Consequently, filing on time means you will get your refund faster and save stress and headaches.
Use last year’s returns as reference
Keeping good records of your tax returns whether electronic or paper is always important. Comparing this year’s documents with last year’s returnserves as a reminder of your deductions or an item you may have overlooked. Last year’s returns will remind you of interest, dividends, and charitable deductions that could be valid this year.
Plan ahead for any refund
You should claim every tax deduction you are entitled to. If you expect a tax refund, planning ahead will allow you to decide how to handle the refund. You may elect to apply the refund to next year’s taxes or deposit the refund to your saving account in Brisbane; in any case, you have time to prioritize. You can pre-pay for next yearor letyour moneygrow.
You need to collect all your tax documents to do your taxes efficiently. Stay on top of tax-related paperwork throughout the year as it reduces the stress during tax season. Having all those receipts organizedwill also reduce the time it takes to process your taxes and get your refund. This translates to less wastage of time and lower fees for the services of your tax returns preparer if you have one. Furthermore, keep an eye out for the documents mailed to you like income and investment interest.
Hire a professional
Hiring a professional tax expert in Melbournewill give you peace of mind. An expert can help you save money on your tax return by identifying possible deductions. They are on top of current tax rules and can determine any credits you may not be aware of. The complexity involved in the tax filing process results in the risk of committing errors, unlike tax professionals who are experienced and know the ropes. They give you the assurance that your tax returns are correct.
Are you looking for a professional tax preparer? Wading through tax records and filing your tax returns is a daunting tax that eats up more hours than you have to devote to it. At Deppro Pty Ltd, we keep up with the tax code and our expertise ensures you get all the deductions and credits you are eligible to receive. Contact us for all your tax return needs.
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Most people focus on cash flow when buying investment properties. They overlook greater benefits like depreciation on investment propertyand tax benefits. One of the biggest benefits of depreciation is that it can reduce reportable net income and therefore your taxes. To help you better understand depreciation, here are some of the most frequently asked questions. Let’s jump right in.
1. What is Depreciation?
As something gets older – for example a building – its structure and the assets contained within wear out. It loses value overtime due to age and deterioration. This loss of value is called depreciation. The owners are allowed to claim it as a tax deduction.
2. Will Claiming Depreciation Help an Investor?
As you use your tax calculator to calculate the tax you owe, claiming depreciation deductions can make a big difference in your cash flow. Deductions cover the lifetime of a property to ensure you maximize your cash flow. They are 100 percent deductible.
3. Who is Qualified to Assess The Depreciation
The purchaser of a building cannot establish the actual cost of a building. The only building cost estimate accepted is from an appropriately qualified person. This qualified person has expertise in the calculation of building construction costs. He or she is also likely to be accepted by a court as an expert witness.
4. What is a Depreciation Schedule?
This is a comprehensive report outlining the depreciation deductions to be claimed by investment property owners. It is based on the property’s building structure, and fixturesand fittings within it. A depreciation schedule prepared by a specialist like DEPPRO Pty ltd will maximize the cash return from your investment property each year, even in Sydney.
5. Why should a Depreciation Schedule Last Forty Years?
The ATO determines any building eligible to claim a write-off allowance. It should have a maximum effective life of forty years from the date the construction was completed. The owner of a brand new building can claim depreciation up to forty years. Consequently, the balance of forty years period is claimable on an older property.
6. How is Building Age Calculated?
Official council documents with dates pertaining to the original application approval date determines the age of a building. The occupancy certificate and final inspection date can also be used. A DEPPRO Pty ltd quantity surveyor conducts the relevant searches and accurately determines the age of your building.
Ask yourself the above questions about depreciation to help you figure out if you are eligible for more tax-saving benefits. It isa great opportunity to put some of your tax money back into your investments.
If you are going to invest money on a rental property, use every tactic in the book to get the most profit from it. Hirea firm like DEPPRO Pty ltd that specializes in this area. It wouldbe awise investment of time and money. We are dedicated to providing you with the knowledge, tools, and support you need – even withproperty report. Contact us to find what we can do for you.
The closing of a financial year means it’s time to start planning for tax season. This time can seem complicated, but tax time does not have to be a burden. Earning an income during a financial year means you must lodge a tax return. The tax return determines whether you have a net tax debt or are entitled to a tax refund. Spending a little time looking over your finances can go a long way in helping you save money because you can reap the benefits of deductions. Here are five essential tips to keep filing your tax return as painless as possible.
1. Make a Choice on How to Lodge Your Return
During tax season, you can choose between lodging them yourself or using a tax agent. An agent completes your return quickly and accurately. Although there is a fee involved, it’s the most stress-free option. All you need to do is make an appointment. When you choose to self-lodge, a registered tax agent checks your return for accuracy before it’s submitted.
2. Get Your Paperwork Ready
Gather the sorts of documents you need before you start the tax return process. Use labelled folders and save relevant receipts throughout the year to avoid spending hours tracking down receipts. Folders will save time and can help you get more money through tax refunds.
3. Understand the Tax Rules and Deadlines
There is countless amounts of0 online information to guide you through lodging your tax return. Although your return covers the financial year from 1 July to 30 June, you can lodge it up through 31 October of that year. If you don’t have the money to pay on time, ATO can design a payment plan to suit your circumstances.
4. Get Professional Advice
Aregistered agent can help you understand expenses you are eligible to claim on your tax return. Many peoplecan lodgetheir returns by themselves, but some sound professional advice can be beneficial. A professional will help you prepare your return well in advance and advise you on howto reduce your taxable income. They reduce stress and save you time. Also, the costs related to professional tax services are tax-deductible.
5. Know Your Deductions
When completing your tax return, you are entitled to claim a deduction of expenses related to earning your income. The easiest way to get a higher tax refund is to claim deductions for work-related expenses that the employer has not reimbursed. These costs may include vehicle and travel expenses, a mobile phone, phone services, internet, and home phone expenses. You are legally entitled to these.
When you delay asking the professionals for help, you can get into trouble or run out of time to deal with your taxes. You could lose hundreds or thousands of dollars in potential tax refunds. The best option is to hire a professional when you have more to consider than just your work income. Choose DEPPRO Pty Ltd to handle your taxation needs to make tax season stress-free. Contact us today.
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Investing in property is a smart way to maximize your cash flow and save for the future. However, navigating through the world of property investments can be overwhelming. There is a lot to learn when trying to grow your business. A property investor should know the different rental yield factors, be knowledgeable about tax breaks, and understand property depreciation. These are essential steps in building an investment property portfolio. Unfortunately, tax laws are not written to be understood easily. Therefore, the process of investing in property comes with a bit of a learning curve.
In this post, we feature beneficial property investment tips.
1. Find Out If You Qualify for Tax Depreciation
Property depreciation is an important factor for rental property investors. Generally, the tax depreciation allows investors to deduct the costs from the taxes of buying and improving a property over its useful life. The Rental Property Depreciation lowers the taxable income, increasing your rental income. In 2017, the Federal Budget introduced some changes that affect property investors. The new tax depreciation laws apply for the properties bought after May 9th, 2017 and touches the plant and equipment categories in residential homes. The government has introduced a limit on plant and equipment deductions.
Under the new regulations, property investors can claim tax depreciation if they meet the following requirements:
You signed the property purchase contract before May 9th, 2017.
The purchase of the new property was after May 9th, 2017.
You hired a property builder to build a new home for investment purposes, and the property remains in your portfolio.
The property is renovated, and you have installed new plant and equipment.
Note that you will not be able to claim depreciation on plant and equipment.
2. Hire a Professional to Prepare the Property Depreciation Report
To determine which items are depreciable, you should prepare the property depreciation report. The report must cover all the depreciable items to avoid losing your income. We suggest you hire the services of a professional to help you prepare the property depreciation report. Qualified property inspectors have the knowledge and experience to know which items are depreciable. Besides, experts understand the rate at which the items are depreciable, and they will advise you on how to get more savings.
3. Save through Capital Gains Tax Exemptions and Discount
The Capital Gains Tax (CGT) is the tax you pay on your property capital gain upon selling the investment. The CGT is part of your income tax, and it is not calculated as a separate tax. However, if you made a capital loss, you cannot claim it against your other income. However, you can declare the loss to reduce the capital gain. There are four legal ways to reduce the CGT on an investment property. These are:
Take advantage of being an owner-occupier if the property serves as your primary place of residence. That way, the property is exempted from CGT.
Wait for up to a year to receive a 50% tax discount on the gain you make on the property.
Get the property reassessed before renting it out.
Take advantage of exemptions like the six-year rule.
Using these tips, you can save on Capital Gains Tax.
4. Ensure Best Property Maintenance Practices
Property maintenance is the secret to ensuring your property is attractive to renters. The property must be put into some profitable use, like renting, to get the property depreciation. In that regard, it is helpful if you engage a professional property management company to manage your property. That way, your property remains attractive to the renters.
We have looked at some smart property investment tips. If you are planning to invest in properties, make sure you factor in these tips. For assistance with property depreciation, talk to DEPPRO. We are the leading property depreciation experts serving Australians. We provide reliable and professional services when it comes to the management of your property.
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Are you contemplating if building a new structure on your piece of land is the right choice? Going for this approach gives you many benefits as an investor. You get your own builder and do some research about what the trends in real estate are, what people are willing to pay for. You want to do everything right to ensure that investing in property would give you a higher ROI from the tenants you wish to attract. Your newly-built property should be perfect for your intended market.
What Is the Process of Building on an Investment Property?
It starts when you purchase a piece of land with the intent of building a house on it with a specific design in mind. In involves finding a builder who will work on a contract for a period of several months. Usually, the construction company oversees the building process, while a bank pays them for their work. Other people ensure the building structure is done to specifications, such as building inspectors, building certifiers, and bank value’s. You also need the Council approval of your plans.
Your builder will update you on the progress of the construction of your investment property. The entire process is easy and exciting, creating new opportunities to invest in other locations. A smart real estate investor acknowledges the importance of diversity in locations, which is also beneficial in the investment portfolio.
What Are the Benefits?
Here are four reasons why building your investment property can give you financial gains even though there are many other attractive houses for sale out there:
You have the opportunity to get instant equity. It means, after buying land and building a property, you may have it re-valued to your lender. If you get a great deal acquiring your property and do an excellent job of building the right property, you can immediately add value to the place and obtain instant equity. You may be able to use that equity for other investments such as leveraging more properties.
Create a dual property. You can build an investment property that accommodates more than one tenant. You may also opt for a granny flat on your property. It is one of the benefits of building an investment property compared to buying an already-established property. You can construct a house anywhere you want on the property and decide on the architecture that will allow you possibilities in the future.
You qualify for depreciation. You can depreciate the construction cost of your newly built property for a period of years. The good thing about property depreciation Sydney is that you can also include the fittings and fixtures in your claim considering that everything is brand new. Also, if you have a positively geared property, you can maximize your tax benefits.
As the value of your investment property increase over time, it is inevitable that the building structure also experiences normal wear and tear. You can apply for depreciation deductions for this natural damage and be able to claim it under plant and equipment as well as capital works deductions.
Plant and equipment refer to the assets that you can remove from your investment property such as blinds, carpets, hot water systems, etc. On the other hand, capital works deductions include the building structure and permanently fixed items like doors, cupboards, sinks, and many others. Note that although most investors may apply for depreciation on investment property, the ones who construct a new house often receive higher deductions.
Attract many tenants. Besides depreciation, another benefit of building an investment property is you will attract a lot of tenants. Make sure your property is clean, stylish, convenient, and low-maintenance. Depending on the current market and your location, your property should give you a low vacancy rate and a steady rental yield.
When investing in property and building a new structure on it, there are many crucial factors to consider, ensuring you reap financial rewards. Learn everything about this type of property investment, including property taxes, market trends, potential risks, returns, depreciation, price, and so on. Also, the builders you choose contribute to how long your property can weather many years of use from renters, as this impact your rent revenue.
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When you claim depreciation it will help in enhancing cash flow from the property. As per ATO rules, businesses can specify depreciation as an expenditure while reporting the income tax return for a specific period. You may refer to tax depreciation tables 2015 when you mention depreciation as an expense. The amount will help in bringing down your taxable income. All residential property and commercial property have depreciation value. The tax regulatory authority summarizes and compiles these deductions in a report known as the tax depreciation schedule.
Here are the things that you must be aware of about the tax depreciation schedule:
1. Consult with a Quantity Surveyor
When you own an investment property, you will remain eligible to claim several tax deductions. It will directly bring down your taxable income. The deductions may include council rates, management fees, accounting fees, and maintenance expenses among others. Meanwhile, the depreciation deduction is separate as it is non-cash. It implies that you are not required to spend money when you seek to claim a depreciation deduction. Many property owners end up missing it. You should consult with an expert Quantity Surveyor who will help in maximizing claims and preparing a schedule. The main motto of all property investors in Australia is to improve their tax refund as much as possible.
The depreciation schedule contains two categories namely capital works and plant & equipment. Capital works involve the property’s actual cost, structures, renovations, and extensions. It has emerged as a vital part of the schedule. Fencing, paving, and sheds including some other permanent assets are also an integral part of this category. Meanwhile, plant & equipment includes assets such as furniture, flooring, and appliances, among others. The procedure of claim includes inspection of the building and fixing a value to each asset.
3. Lease days
The ATO permits you to claim depreciation till the time property remains available for lease. If you happen to be a new owner of an investment property, you will still be allowed for a claim. In this situation, the claim will mainly depend on the number of days the property remained available for rent. When you consult with experts and accountants, it is necessary to ask about partial claims within the year and pro-data deductions depending on the lease tenure. When you lodge your tax return Australia online, some vital details will already be filled for you.
4. Previous years claim
There are times when property owners tend to miss claiming depreciation deduction for many years due to ignorance. However, now ATO permits adjustment years after the first submission. This implies that you may file an amendment application for the missed depreciation deductions.
You must be aware of the aforementioned things about your tax depreciation schedule. Soon after you improve your property, you need to hire a professional Quantity Surveyor to help you prepare a detailed claim. Your motto must be to enhance your Yield on investment property. You should not get confused between repairs and capital works improvement. It is because the claim procedure for the two remains different. This is the reason why you need to hire a professional as it will ensure that your deductions are correct.
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Tax depreciation plays a vital role for property investors. It can significantly enhance cash flow for them when they prepare their property depreciation report effectively. They can also bring down their payable tax. The goal of an individual is to bring down tax liabilities and it can be achieved by claiming tax depreciation. And, when you desire to maximize your cash flow, you can, once again, do so by claiming all existing tax deductions.
Let’s understand the importance of tax depreciation for property investors with the following questions and answers:
Why You Must Claim Tax Depreciation Deduction?
Tax depreciation deduction, in combination with other existing tax deductions, can bring down your tax payable thus leaving more money in your pocket. A large number of investors are aware that they will be able to claim a tax deduction for property management fees, interest, repairs, and maintenance. However, some of them end up missing out on claiming tax depreciation deduction. As interest rates are quite low, tax depreciation deduction can significantly emerge as one of the major deductions claimable. They should effectively get their investment property depreciation schedule prepared with the help of reliable professionals. Depreciation deduction will bring down your taxable income and assist your property return a positive cash flow.
Will All Property Investors Require a Tax Depreciation Schedule?
It is imperative to investigate obtaining a tax depreciation schedule if you are keen to enhance all your capital allowance and tax depreciation. Owners of qualifying residential property or commercial space must order a tax depreciation schedule if they plan to claim one of their major tax deduction. You must also need to find out if your investment property qualifies or not. You may hire leading professionals who may carry out an estimate of tax depreciation deductions available for you.
How You May Claim Your Tax Depreciation Deduction?
The most convenient way to claim tax depreciation deduction is to get a tax depreciation schedule prepared from quantity surveyor tax depreciation. He will prepare your tax depreciation schedule for your accountant so that he may apply it at the right time. It is worth noting that your accountant is not eligible to assess the construction cost for generating this deduction for you. Some property investors are not aware of whether they need to pay for their tax depreciation schedule every year. It is important to note that they are not required to pay for it every year. It is because it is a one-time investment that remains completely tax-deductible in the year you buy it.
Tax depreciation holds great significance for property investors. You also need to get your depreciation schedules for rental property prepared from quantity surveyors. Free updates are allowed to be made where you have replaced, added, or improved assets or carried out small improvements. In case you have just completed major works and estimation is needed, you may have to pay a fee. You must not become such a property investor who fails to claim one of the biggest tax deductions available.
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Tax allowance has the potential of making investment property profitable and depreciation has emerged as a key allowance. Depreciation residential rental property is a vital tax allowance that you must not forget to claim. Depreciation is a crucial element of a property investor’s investment strategy. It is important to note that depreciation tax breaks remain higher on new properties. However, they are available for all kinds of investment properties whether they are old or new. A large number of investors end up missing out on important tax breaks every year.
Here is how depreciation will work for a new investment property:
What is depreciation?
According to the Australian Tax Office, depreciation can be described as when assets decline in value as they age. It can be described with an example. Let us take an instance of a $2000 desktop computer on which ATO allows four years. It will provide you a $500 deduction every year over a period of four years. You should be aware of how and when to lodge your Australian tax return.
How property investors will claim depreciation?
Property investors will be able to claim for depreciation in two ways namely capital works deductions and depreciating assets. Here is how it can be further described:
Capital works deductions: It is defined as the expense of building an investment property or construction expenditure. This form of depreciation normally spreads for more than 40 years. In other words, it is the duration that ATO claims that a building will last before it will require replacement. For example, if $2000 spent on building a new property, you may make a $5000 tax claim every year for 40 years (2.5 % per year).
Depreciating assets: According to ATO, depreciating assets will include items like electric equipment, computers, furniture, and motor vehicle, among others. For property investors, the depreciating assets will include items like stoves, light fittings, carpets, or even the rubbish bin. ATO has specified all the items that you will be able to claim and for how long when you prepare your property report. It is also known as the effective life by ATO according to which this is how long the assets will last before it will need replacement. For instance, a carpet’s estimated lifespan will be 10 years, the kitchen stove’s life will be 12 years, and the bin’s life will be 10 years.
How you may claim depreciation?
You will be able to claim depreciation using two methods namely the prime cost method and diminishing value method. The prime cost method provides you an equal tax deduction every year over the item’s effective life. Meanwhile, the diminishing value method will offer you bigger claims in the initial years of the item’s effective and smaller claims gradually. A large number of investors opt for the diminishing value method as it provides them with a higher depreciation rate in the beginning. If you face some confusion, your accountant will give you advice as to which method will work best for you.
The aforementioned details will give you an adequate idea of how depreciation will work for a new property. It is ideal to hire an expert quantity surveyor who will be able to prepare your tax depreciation schedules in an effective manner. They have expertise in identifying the value of construction work. They can also offer you a report on the depreciation rate that will be claimable on your property and when you may claim it. You will then send this report to your account who will claim it on your tax return.
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Working from home has become the new normal. The major advantage that it offers is the greater level of flexibility. However, there is one thing that has no flexibility: no matter where we work from, our tax obligations still remain the same. Did you know that you may be eligible for a depreciation tax benefit for your incurred costs during the COVID situation as well? Yes, you read it right! You can claim certain costs related to work from home obligations. However, it must be noted that this only concerns the people who usually work from an office but due to the COVID pandemic, or any other reason outside their control, are currently working from home. You should also remember that you cannot claim the amount reimbursed in this case.
Methods for Calculating Your Tax Deduction While Working From Home
Taxpayers were generally using two different methods before 1 March 2020 for calculating home office tax deduction, the Fixed Rate Method and Actual Cost Method. And these are still applicable.
But as a result of the COVID-19 pandemic, the Australian Taxation Office (ATO) introduced of the Shortcut Method, which applies to the periods:
1 March 2020 to 30 June 2020 for the income year 2019–20; and
1 July 2020 to 30 September 2020 for the income year 2020–21
According to the ATO, extension in the period is possible. However, this depends on the length of time the pandemic disrupts normal operations.
The ATO depreciation rate under the Shortcut Method is 80 cents per hour. This is for all “running expenses”. While using this method, you must record the corresponding working hours at home.
Methods for Calculating Your Tax Deduction While Working From Home
You should fully do the office work from home and not just the minimal task. The below are items that can be claimed in part as work from home expenses as listed below:
Occupancy expenses like mortgage interest, rent, and other costs.
Heating, cooling, and lighting – this includes various household utility bills.
Home office equipment- this includes computers, telephones, and printers.
Work-related phone calls – this includes phone rentals or mobile usage for office work purposes.
Depreciation in the value of furniture and fittings – you can claim for furniture such as desks and cupboards which are used for home office.
Is There a Need to Follow Any Tax Depreciation Schedule While Working From Home?
With the short cut method, it is not required. In other cases, an accountant can help in calculating the depreciation value. But if you are running a business from home, an expert can guide you in preparing the federal tax depreciation schedule.
What Are the Capital Gains Tax Implications When You Work From Home?
If you are working from home, you do not have any capital gains tax (CGT) implications for your home. This applies when you run a business from home.
Today more people are working from home however, facing certain expenses that weren’t in the picture during the regular times. You can follow the above procedures for achieving the depreciation tax benefits. Understanding tax claims is a challenging process but, the shortcut method gives you a simple calculating option. All you need to do is maintain the record of your working hours and expenses. If in any doubt, contact a tax expert for advice.
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